The Bathtub Overflows: Conspiracy with Advertising Agents. Management Consultants, Commission Brokers and Other “Outside” Agencies under Section 1 of the Sherman Act

• Author: James E. Harrington
• Published date: 01 December 1977
• Date: 01 December 1977
• DOI: http://doi.org/10.1177/0003603X7702200401
• Subject Matter: Article

THE

BATHTUB

OVERFLOWS: CONSPIRACY WITH

ADVERTISING AGENTS. MANAGEMENT CONSULTANTS.

COMMISSION

BROKERS

AND OTHER "OUTSIDE"

AGENCIES

UNDER

SECTION

10F

THE

SHERMAN ACT

by

JAMES

E.

HARRINGTON-

The. obvious faults of the so-called "bathtub conspiracy"

doctrine have been identified by many previous writers. If,

as the doctrine holds, agreements between jointly owned

corporate entities

are

cognizable as "conspiracies" under

section 1 of the Sherman Act, many normal intracorporate

decisions on pricing and distribution are automatic

per

se

antitrust violations, and nothing but a thin veil of corporate

form protects our entire industrial organization from legally

mandated disintegration. Professor Bahl best summarized

the problem more than 25 years ago:

If

the accident of separate corporate entities in a unified

enterprise, which probably arose for

tax

or managerial

convenience purposes, is to be seized upon as an anti-

trust

violation, the courts will

be"

put

to the necessity of

following a logical path to absurdity. The corporate

family might first

try

evasion by abandoning separate

entities. This development in

turn

would invite the find-

ing of conspiracy between the single corporation and one

or more of its officers and directors. Or de facto corpo-

rations might be judicially created for' different functions

within the corporation, thus adding a nice development

to that over-worked field of corporation law. Or the cor-

porate veil could be fully pierced and conspiracies of all

variety found among the individuals managing the corpo-

ration or ratifying the actions of the managers. There

is no requirement that anti-trust conspirators be eorpo-

-Pettit, Evers &Martin,San Francisco, Calif.

741

742

THE

ANTITRUST

BULLETIN

rations, and once the enterprise unity is ignored in favor

of form, there is no particular stopping-point short of

the single entrepreneur with no employees. The

diffi-

culties with conspiracy discussed in the preceding section

would all be solved in one fell swoop. Every company

would be a nest of conspiracies.'

Notwithstanding these valid criticisms, this strange doc.

trine has survived and, indeed, has been consistently reaf-

firmed,

at

least in dicta, by the Supreme Court."

Its

potential

disastrous consequences have been forestalled only by the

sensible restraint of the enforcement agencies and the lower

courts' steadfast refusal to follow the logic of the doctrine to

its impractical conclusions." An

arbitrary

line now appears

to have been drawn separating incorporated subsidiaries from

unincorporated operating divisions, and the rule now seems

to be that only the former, and not the latter, are potential

co-conspirators under section 1 of the Sherman Act.' Thus,

only if a corporation chooses to "avail itself of the privilege

of doing business through separate corporations" do its

intra.

corporate decisions amount to "conspiracies," 5and all that

the corporation need do to avoid liability is to engage in a

paper-shuffling transformation of its erstwhile "separate cor-

porations" into unincorporated operating divisions," Disaster

has thus been averted, but only

at

the cost of illogic and a

paradigmatic exaltation of form over substance.

Meanwhile, however, an even uglier cousin of the bathtub

conspiracy doctrine has reared its head, and it is not

at

all

clear

that

this related doctrine will be susceptible to control

by the same formalistic sleight of hand. Indeed, some of the

very formalisms which have proved useful in restricting ap-

plication of the bathtub conspiracy doctrine appear likely to

promote the growth of this equally irrational and dangerous

doctrine.

The doctrine referred to, which shall be the central sub-

ject of this article, is the notion

that

cooperation by a corpo-

ration with any "outside" person or entity to accomplish a